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JBS wins breathing space over $6.5bn debts, sending shares soaring

News26 Jul 2017by Newsdesk

Shares in JBS bounced nearly 8% after the meat giant, seeking to stabilise its finances after receiving a record fine, revealed deals with lenders over $6.5bn of debts, and was seen as potentially in line for a bid for its Pilgrim's Pride division.

Shares in Brazil-based JBS hit R$7.53 at one stage, before easing back to R$7.46 in late deals in Sao Paulo, a gain of 6.7% on the day.

However, the shares are still down some 35% so far in 2017 – a year in which the group has agreed a record $3.2bn fine for its role in corruption claims that have threatened to topple President Michel Temer, and with Brazil's meat sector caught up in food safety scandals too.

Wednesday's share recovery following an announcement by the group of deals to gain breathing space of its debt burden, winning agreement to maintain credit lines from banks responsible for the equivalent of 93% of loans to its key JBS Brazil business.

'Necessary stabilisation'

The agreements, covering R$20.5bn ($6.5bn) in borrowings from both Brazilian and foreign lenders, "will ensure the financial liquidity and regularity of JBS's operations", said the group, which had been seen as facing extra financial pressure from its debt burden, on top of the fine payment.

Reportedly, JBS had faced demands to repay R$14bn in debts over the next 12 months.

However, the deals will allow the debt "stabilisation… necessary to ensure the stability of JBS's financial profile," said the company, which will continue to pay interest on the loans at existing rates, plus pay 10% of the principal of the debt over four instalments.

JBS said it had also agreed a separate deal with Unibanco which will see R$480m of borrowings repaid under the original terms, but a further R$720m of lending renewed.

Pilgrim's Pride interest?

JBS, which has also sold a series of assets to raise cash, was also viewed as potentially in line for a bid for Pilgrim's Pride, its US-based poultry group, which it paid $2.8bn in 2009 to take control of.

Cargill, the agricultural trading giant, was reported by Brazilian newspaper O Estado de Sao Paulo to be mulling an offer for Pilgrim's Pride, which had a market capitalisation of $6.0bn at Wednesday's share price.

While JBS has sold off operations including South American beef operations to bolster its balance sheet, and put European poultry group Moy Park up for sale, the company said last month that Pilgrim's Pride is not for sale, rating it as an asset "core" to a long-term strategy of prioritising businesses that reduce volatility and enhance margins.

Pilgrim's Pride stock stood 2.6% higher at $24.11 in late deals in New York, taking nearly to 17% their recovery from a low set two weeks ago.

Faced with mounting concerns over labour shortages and fears they may not be able to fulfil retailer contracts, some British growers have sought to cut ties with UK supermarkets in favour of companies elsewhere in Europe.